Thank you so much, Pat!
A quick glance at the IRS site confirmed my recollection that you don't have to pay income tax on canceled debt if you were insolvent at the time. Ask your accountant or lawyer how to show insolvency. The general (law school) definition of insolvency is liabilities exceed assets and unable to pay debts as they come due. Note that there are certain exempt assets (things you could keep in bankruptcy, such as a cemetery plot) that don't have to be counted.
It also says, "certain qualified student loans" don't have to be included in gross income.
http://www.irs.gov/taxtopics/tc431.html